Johannesburg, 20 June 2017 – Global Credit Ratings (“GCR”) has accorded African-Export Import Bank’s future and outstanding issues of senior unsecured unsubordinated debt securities, under its USD5bn Euro Medium Term Note Programme, a long term international scale foreign currency (“FC”) rating of BBB+, with a Stable outlook. The rating is valid until November 2017.
SUMMARY RATINGS RATIONALE
African-Export Import Bank’s (“Afreximbank”, “the Issuer”, “the bank”) senior unsecured unsubordinated debt securities (“the Notes”), issued under its USD5bn Euro Medium Term Note Programme (“EMTNP”), rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Issuer. Notes may be issued on a continuing basis, while the aggregate nominal amount of Notes outstanding may not exceed USD5bn. Accordingly, Notes are issued in series and each series may be issued in tranches. The ratings are premised on the long-term international scale FC rating accorded to the Issuer by GCR in February 2017 of BBB+, with a Stable outlook.
On 20 June 2017, Afreximbank issued USD750m in Series 12 (Tranche 1) Notes under its rated EMTNP. The Series 12 (Tranche 1) Notes have a seven year tenor, a fixed coupon rate of 4.125% (payable semi-annually in arrears), and were admitted to the Official List of the Irish Stock Exchange and trading on the Global Exchange market with effect from the Issue date. The Series 12 (Tranche 1) Notes carry the EMTNP rating.
Afreximbank relies predominantly on five avenues for funding, namely: bond issues, bilateral lines of credit, syndicated loans, customer accounts and deposits, and equity injections by the shareholders. At FY16, Afreximbank had total outstanding Note issues (comprising fixed rate notes with different coupons and maturities) under the EMTNP of USD3bn (FY15: USD3bn), within the USD5bn EMTNP limit, and equivalent to 21.1% (FY15: 30.3%) of total funding.
Afreximbank holds a strategic position on the African continent, derived from its development mandate and broad equity participation (comprising 135 shareholders, 41 of which are African governments and their central banks). The bank’s distinctive trade and development expertise and commitment to promote intra- and extra- African trade (including trade facilitation programmes with commercial banks to small and medium sized enterprises, underpin its significance and leverage with governments in the region, given a deepening trade finance gap in Africa.
Given the shareholder diversity, the level of sovereign interference risk is considered to be relatively low. The majority of liquid assets are USD denominated and placed with investment grade rated counterparties. Due to the diversity of the funding base, the international FC ratings have not been constrained by the country ceilings of member countries. Afreximbank exhibits low liquidity risk, with cumulative positive liquidity buffers maintained across all maturity buckets at 1Q FY17. The bank has access to funding from international banks, development finance institutions and capital markets.
The strength of Afreximbank’s intrinsic credit profile supported by its positive earnings trend, increased capitalisation, reasonably sound asset quality metrics, comfortable liquidity and adequate risk management framework, further underpinned the rating.
A General Capital Increase of USD500m approved in 2014 was successfully raised by July 2016, demonstrating strong shareholder support and commitment, despite the low average shareholder rating. Risk-adjusted capitalisation remains adequate, with the bank reporting a capital adequacy ratio of 23% at 1Q FY17 (FY16: 23%). Financial flexibility is further boosted by the bank’s access to callable capital (USD568.5m at 1Q FY17), which acts as a guarantee for the bank’s borrowings, provides an additional buffer, and demonstrates shareholder commitment in the event of financial stress. Furthermore, the recent credit enhancement of callable capital (up to USD409m) via a medium-term credit risk mitigation instrument mitigates possible delays in collecting capital from some member countries with low sovereign ratings.
Gross non-performing loans amounted to 2.2% of gross loans at 1Q FY17 (FY16: 2.4%), supported by loan growth and recoveries. The bank’s profit grew by 31.7% (FY15: 19.4%) to USD165.0m in FY16, supported by an expanded loan portfolio. The bank’s ROaA and ROaE was 1.8% (FY15: 2.0%) and 11.5% (FY15: 11.4%) in FY16 respectively.
With no enhancement, timely payment of the obligations under the Notes depends on the performance of the Issuer. Hence, the accorded rating would be sensitive to a positive rating action on the Issuer. Conversely, non-compliance with covenants, negative Issuer performance, and a downgrade to the Issuer’s rating could trigger negative rating actions on the Issues.
INTERNATIONAL SCALE FC RATINGS HISTORY
|Initial rating (June 2017)|
|Sector Head: Financial Institution Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Criteria for Rating Banks and Other Financial Institutions, updated March 2017
Global Criteria for Rating Multilateral Development Banks (“MDBs”), updated September 2016
Afreximbank rating report (February 2017)
RATING LIMITATIONS AND DISCLAIMERS
ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.NET.
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; and c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
African Export-Import Bank participated in the rating process via written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to the African Export-Import Bank with no contestation of the ratings.
Information received included:
- Audited financial results of the bank as at 31 December 2016 (plus two years of comparative figures)
- Unaudited interim results of the bank as at 31 March 2017; and
- Base Offering Memorandum relating to the USD5bn Euro Medium Term Note Programme and the Pricing Supplement dated 16 June 2017.
The rating above was solicited by, or on behalf of, African Export-Import Bank, and therefore, GCR has been compensated for the provision of the rating.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S FINANCIAL INSTITUTIONS GLOSSARY
|Asset||A resource with economic value that a company owns or controls with the expectation that it will provide future benefit.|
|Asset Quality||Refers primarily to the credit quality of a bank’s earning assets, the bulk of which comprises its loan portfolio, but will also include its investment portfolio as well as off balance sheet items. Quality in this context means the degree to which the loans that the bank has extended are performing (ie, being paid back in accordance with their terms) and the likelihood that they will continue to perform.|
|Basel||Basel Committee on Banking Supervision housed at the Bank for International Settlements.|
|Basel I||Basel Committee regulations, which set out the minimum capital requirements of financial institutions with the goal of minimising credit risk.|
|Bond||A long term debt instrument issued by either: a company, institution or the government to raise funds.|
|Callable||A provision that allows an Issuer to repurchase a security before its maturity.|
|Capital||The sum of money that is invested to generate proceeds.|
|Capital Adequacy||A measure of the adequacy of an entity’s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its net worth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent.|
|Capital Base||The issued capital of a company, plus reserves and retained profits.|
|Cash||Funds that can be readily spent or used to meet current obligations.|
|Collateral||Asset provided to a creditor as security for a loan.|
|Coupon||The interest paid on a bond expressed as a percentage of the face value. If a bond carries a fixed coupon, the interest is usually paid on an annual or semi-annual basis. The term also refers to the detachable certificate entitling the bearer to the interest payment.|
|Credit Rating||An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and/or interest when due.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Equity||Equity (or shareholders’ funds) is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Financial Institution||An entity that focuses on dealing with financial transactions, such as investments, loans and deposits.|
|Guarantee||An undertaking in writing by one person (the guarantor) given to another, usually a bank (the creditor) to be answerable for the debt of a third person (the debtor) to the creditor, upon default of the debtor.|
|International Scale Rating FC||International foreign currency (International FC) ratings measure the ability of an organisation to service foreign currency obligations, taking into account transfer and convertibility risk.|
|Investment Grade||Credit ratings equal to or higher than ‘BBB-’.|
|Leverage||With regard to corporate analysis, leverage (or gearing) refers to the extent to which a company is funded by debt.|
|Liquid Assets||Assets, generally of a short term, that can be converted into cash.|
|Liquidity||The speed at which assets can be converted to cash. It can also refer to the ability of a company to service its debt obligations due to the presence of liquid assets such as cash and its equivalents. Market liquidity refers to the ease with which a security can be bought or sold quickly and in large volumes without substantially affecting the market price.|
|Liquidity Risk||The risk that a company may not be able to meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets. Regarding securities, the risk that a financial instrument cannot be traded at its market price due to the size, structure or efficiency of the market.|
|Long-Term||Not current; ordinarily more than one year.|
|Long-Term Rating||Reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Maturity||The length of time between the issue of a bond or other security and the date on which it becomes payable in full.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Rating Outlook||Indicates the potential direction of a rated entity’s rating over the medium term, typically one to two years. An outlook may be defined as: ‘Stable’ (nothing to suggest that the rating will change), ‘Positive’ (the rating symbol may be raised), ‘Negative’ (the rating symbol may be lowered) or ‘Evolving’ (the rating symbol may be raised or lowered).|
|Risk||The chance of future uncertainty (i.e. deviation from expected earnings or an expected outcome) that will have an impact on objectives.|
|Risk Management||Process of identifying and monitoring business risks in a manner that offers a risk/return relationship that is acceptable to an entity’s operating philosophy.|
|Securities||Various instruments used in the capital market to raise funds.|
|Shareholder||An individual, entity or financial institution that holds shares or stock in an organisation or company.|
|Short-Term||Current; ordinarily less than one year.|
|Short-Term Rating||An opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Stock Exchange||A market with a trading-floor or a screen-based system where members buy and sell securities.|
|Syndicated Loan||A large loan arranged by a group of funders, usually international banks, that form a syndicate, headed by a lead manager.|
|Tranche||Used to mean an allocation or instalment of a larger loan facility. Tranches of the same debt programme may differ from each other because they pay different interest rates, mature on different dates, carry different levels of risk, or differ in some other way.|
For a detailed glossary of terms please click here